Welcome back all. Hope you had a good weekend, and for those of you who are horse racing fans, we hope put some money on Preakness winner Oxbow. At 15-1 odds, it's pretty clear bettors didn't think much of him, but it just goes to show you that anything can happen. If you've got a hunch, sometimes the best thing to do is act on it even if the majority of the crowd doesn't agree. The same applies to picking stocks, by the way. Anyway, more new highs from the market today, but with a red flag late in the session. Like I explained to you on Friday, the market's going higher now mostly because it's going higher. It's a fun ride while it lasts (and you should be riding it), but when the music stops I've got a nasty feeling it's going to be a pretty harsh correction. I'll talk about that in a second. First I've got a couple of not-so-random thoughts on Yahoo! (YHOO). The web giant bought blogging site Tumblr today, paying $1.1 billion for it. My question is, what was Marissa Mayer thinking? Yahoo! Stumbles Into Tumblr Just for the record, I like Marissa Mayer. I think she was a good pick as CEO, and from where I sit, she started to give Yahoo! some much needed direction right out of the gate when she took over as CEO in July of last year. But, I always get a little nervous when a chief executive starts to deviate from a plan she herself laid out in a conference call less than a year ago. These are her words from October of last year: "We're looking for smaller-scale acquisitions that align well overall with our businesses... I think one of the things that is lost on people is because so many of the high-profile tech acquisitions are above the $1 billion mark, people tend to think that tech acquisitions are all in that space, and that's just not the case... Many acquisitions are less than $100 million." OK, she never explicitly said she didn't want to go fishing for a whale, but let's face it - she led us to believe a $1 billion deal wasn't in the cards. Yet, there it is... a $1.1 billion deal for a company that will be lucky to drive about $100 million in revenue this year, and a company that's been losing about $2 for every $1 in revenue it collects. Now, you and I both know if anybody can make something bigger and better out of Tumblr, Yahoo is at the top of a short list. To that end, here's the relevant snippet from the press release announcing the deal: "Per the agreement and our promise not to screw it up, Tumblr will be independently operated as a separate business. David Karp will remain CEO. The product, service and brand will continue to be defined and developed separately with the same Tumblr irreverence, wit, and commitment to empower creators. With more than 300 million monthly unique visitors and 120,000 signups every day, Tumblr is one of the fastest-growing media networks in the world. Tumblr sees 900 posts per second (!) and 24 billion minutes spent on site each month. On mobile, more than half of Tumblr's users are using the mobile app and do an average of 7 sessions per day. Its tremendous popularity and engagement among creators, curators and audiences of all ages brings a significant new community of users to the Yahoo! network. The combination of Tumblr+Yahoo! is expected to grow Yahoo!'s audience by 50 percent to more than a billion monthly visitors, and to grow traffic by approximately 20 percent. The deal offers unique opportunities for both companies. Tumblr can deploy Yahoo!'s personalization technology and search infrastructure to help its users discover creators, bloggers, and content they'll love. In turn, Tumblr brings 50 billion blog posts (and 75 million more arriving each day) to Yahoo!'s media network and search experiences. The two companies will also work together to create advertising opportunities that are seamless and enhance the user experience. Total consideration is approximately $1.1 billion, substantially all of which is payable in cash. "Tumblr is redefining creative expression online," said Yahoo! CEO Marissa Mayer. "On many levels, Tumblr and Yahoo! couldn't be more different, but, at the same time, they couldn't be more complementary. Yahoo is the Internet's original media network. Tumblr is the Internet's fastest-growing media frenzy. Both companies are homes for brands - established and emerging. And, fundamentally, Tumblr and Yahoo! are both all about users, design, and finding surprise and inspiration amidst the everyday."" Great, and the news release makes it fairly clear that Yahoo! is aiming to add Tumblr's 50 billion blog entries into the search giant's content universe. Thing is, I just can't embrace the idea that anybody using Yahoo! to perform a web search is interested in reading one of those 50 billion blog entries. I'm also having a hard time rectifying "Tumblr will be independently operated as a separate business" and "The two companies will also work together to create advertising opportunities that are seamless and enhance the user experience." Those 'enhanced user experiences' have a bad habit of ruining the user experience. Let's also not forget Facebook, Google, and Microsoft all passed on their opportunity to buy the company. You have to wonder why. [Well, you don't have to wonder why.... I can tell you. It's because there's not enough potential in this kind of blogging platform anymore. Tumblr drives revenue for its bloggers using interactive advertising. It's a struggling idea, with few barriers to entry. And, there's not a lot of evidence that people who religiously use Google or Faceboook or Microsoft are the same people who are interested in reading or writing personal blogs. Yahoo's users aren't apt to be any more interested] I also can't get past the fact that some similar enthusiasm was floating around back in 2005, when Yahoo! acquired Flickr for a significantly lower price tag of $30 million. Now Flickr is barely even a memory. Yahoo! also turned GeoCities into nothing within just a few years of paying $3.6 billion for it in 1998. Yahoo! bought www.broadcast.com in 1999 for $5.7 billion, and now the entity doesn't even exist in a recognizable form. The optimists will be quick to point out that those acquisitions were at a different time, and done by a different company than the one Yahoo! is today. And, those bulls would be right. Even if today's Yahoo! is the right management team with the right approach at the right time, none of that will actually circumvent the bigger problem at hand - the problem that plagued all those other acquisitions.... integration of two unlike-companies into one entity that creates a synergy. Like I said, are Yahoo's users and advertisers really interested in something like Tumblr, which has made a point of avoiding display ads? Throw in the fact that Yahoo! only has $4.6 billion in cash on hand, and a decent chunk of its liquidity goes away too. Maybe it's just me. But, between the 75% runup we've seen from YHOO since this time last year - on top of the fact that Mayer has already strayed from her original plan of acquiring business that easily dovetail into Yahoo's ecosystem - I'd be looking to wade out of a position now. I still like the company despite the questionable acquisition, but I don't like it as much as I did a week ago. And, I'm definitely not fan of jumping on a stock that's already pushing its luck with a 75% gain in less than a year. Now, about the market.... Red Flag, But Not a White Flag Not really a lot to say about stocks today. We hit a new high, but fell back to close a little in the red. Yet, there was a small hint in today's insignificant action that may well end up being a very big deal. Take a look at the shape of today's bar... the open, high, low, and close. The S&P 500 - along with the other indices - opened modestly, rallied into new-high territory for a while, but the bulls weren't able to hold onto those gains. That particular shape (called a 'doji' by some) is often a sign of a trend reversal. It suggests the bulls ran out of gas at mid-day today, and handed the reigns to the bulls. Don't jump the gun, however. This particular chart clue requires confirmation, in the form of a lower close. Of course, as overbought as the market is now, it wouldn't be too tough for the sellers to drag the market a little lower. Once that happens, it could start an overdue avalanche. Until we see it happen though, it's all academic. The bigger trend is still technically a bullish one. There's no need to make a mountain out of a molehill just yet. While we're waiting on the market to make its next move, here's a special offer exclusively for today's readers of the SmallCap Network newsletter.